How would it feel to live 20-30 years without a salary? That is, after all, what retirement is all about! According to an HSBC survey report titled “The Future of Retirement: Healthy New Beginnings,” financial concerns are the biggest roadblocks to retirement for many Indians. One obvious reason for this is that almost all goals in their life have been planned except the last and most important one, which is retirement.
It is commonly observed that Indians save for a house, their children’s education, and their marriage. However, when asked about their retirement plans, a common response is ‘Will See,’ which implies a lack of urgency. Perhaps they expect their children to look after them, or they believe that their EPF corpus is enough for their retirement. But if a person calculates the approximate money needed to live a stress-free retired life, he will realize why planning for retirement is an important goal when compared with other financial goals in his life.
Let’s look at a simple example. If one’s average monthly expenditure at the age of 40 is Rs.50,000 (Rs.6 lakhs per annum), it is likely that after 20 years or at the age of 60, it will be Rs.1.93 lakhs (Rs.23.22 lakhs per annum), assuming a 7% inflation rate. At the ages of 70 and 80, this expense would be Rs.3.80 lakhs and Rs 7.48 lakhs per month, respectively. While these figures appear astronomical today, they will appear normal in 30-40 years later as inflation catches up.
According to basic retirement calculations, at the age of 60, one would need a corpus of approximately Rs.3.75 crore to survive the next 30 years (life span of 90 years), assuming a 12% rate of return on the corpus and a 7% inflation rate for expenses. One can argue that a life span of 90 years is unrealistic, but given advances in medical technology, it appears to be feasible.
The table below shows how a Rs.3.75 crore retirement corpus can be built with small monthly SIPs (Systematic Investment Plans) in mutual funds if started early
| SIP Starting Age | SIP Amount per month | SIP Starting Age SIP Amount per month Return on Investment * (Assumption) SIP Period (Till Age = 60 years) Corpus needed on Retirement | SIP Period (Till Age = 60 years) | Corpus needed on Retirement |
| 25 years | Rs.5,780 | 12% p.a. | 35 years | Rs.3.75 crore |
| 30 years | Rs.10,630 | 12% p.a. | 30 years | Rs.3.75 crore |
| 35 years | Rs.19,770 | 12% p.a. | 25 years | Rs.3.75 crore |
| 40 years | Rs. 37,550 | 12% p.a. | 20 years | Rs.3.75 crore |
| 45 years | Rs.74,400 | 12% p.a. | 15 years | Rs.3.75 crore |
According to the table, the larger the SIP amount required, the later you start. In fact, for every 5 years that you delay starting your investment, the SIP amount nearly doubles. As a result, it is critical for investors to begin saving for retirement through SIPs as soon as possible. Remember this proverb, ‘You can be young without money, but you can’t be old without it,’ when it comes to retirement.